The Dow Jones Industrial Average fell 25.58 points, or 0.2 percent, to close at 11,697.31 after closing at multi-year highs the previous session following a surprising rise in private sector jobs.

Verizon Travelers and AT&T slid, while Microsoft and Boeing advanced.

The S&P 500 fell 2.71 points, or 0.2 percent, to close at 1,273.85, while the tech-heavy Nasdaq gained 7.69 points, or 0.3 percent, to close at 2,709.89. The CBOE Volatility Index, widely considered the best gauge of fear in the market, rose above 17.

But BP gained after investors in the troubled oil firm shrugged off a White House reportthat blamed the firm in addition to Transocean and Halliburton for cost cutting decisions that led to the largest offshore oil spill in history. The White House commission said BP and its partners in the Macondo oil well didn't have a system to ensure their procedures were safe.

And ExxonMobil edged higher after Oppenheimer upgraded the oil giant to "outperform" with a $90 price target, citing increasing oil prices which will allow the firm to accelerate its share repurchases and grow its dividend.

Tech stocks offered one of the few bright spots in Thursday's market, led by Microsoft, Microsoft which announced that it would use chip designs fromARM Holdings in the latest version of its Windows operating system. Shares of ARM jumped.

"This year a lot of focus on tablets and smartphones, and everything in that food chain is starting to do well," Karchem at Bel Air said.

As a result, many semiconductors advanced, including Nvidia , NetLogic and Trident Microsystems . Raymond James raised its price target on Nvidia to $24 from $19.

The newly created Motorola Mobility , the wireless device segment of the former Motorola, jumped after unveiling Xoom, a tablet product that uses Google's Android operating system. Google shares also advanced.

Meanwhile, Research In Motion slipped a day after the BlackBerry maker rolled out its version of the tablet, called Playbook.

Apple traded flat after the iPod maker opened its store of downloadable programs for its Mac computers, with more than 1,000 apps available for downloading.

On the financial front, shares of Citigroupgarnered attention as the once struggling bank's shares traded around $5 a share.

Goldman Sachs fell after news bond insurer ACA Financial Guaranty filed suit against the investment bank in connection with a synthetic collateralized debt obligation called ABACUS 2007-AC1 which Goldman Sachs created and sold on behalf of Paulson & Co., a hedge fund, in 2007. ACA is seeking $30 million in compensatory and $90 million in punitive damages.

Bank of America advanced after the financial giant said it was going to start hitting customers with new fees associated with costs incurred from the Dodd-Frank financial reform legislation.

Barclays Capital cut the sector to "neutral" from "positive," saying that an increase in housing-related stocks since late November leaves little upside for most housing stocks this year. Barclays stressed that the call is "not a function of increased pessimism" around the housing market.

Wells Fargo, however, kept its market weight rating on the homebuilding sector, saying it was somewhat more positive on the stocks. Wells Fargo raised D.R. Horton to "outperform" from "market perform" and Standard Pacific to "market perform" from "underperform." The brokerage cut MDC Holdings and Toll Brothers, however.

Meanwhile, KB Homes will report earnings before the market opens on Friday.

GM advanced after Morgan Stanley said "GM has the potential to one day produce the earnings and cash flow required to justify a valuation closer to $100 than $50." The brokerage currently has a price target of $50 for the automaker, one of the highest on the Street.

Ford shares rose as the automaker plans to unveil its latest electric Ford Focus at CES Friday following rivals GM, Nissan and others in the electric car race.

In earnings news, Monsanto rose after the agricultural biotech giant reported results largely in line with expectations, and reaffirmed earnings goals for the full year. S&P Equity raised its price target on the seed company to $71 from $55.

Constellation Brands declined more than 6 percent even after the largest wine company in the world reported a stronger-than-expected quarterly profit.

Moody's jumped after the bond rating company raised its profit forecast, citing heavy U.S. debt issuance and investor demand for junk bonds. The firm also boosted its revenue estimate.

Volume on the consolidated tape of the New York Stock Exchange reached 4.7 billion shares, while on the NYSE floor, 1.1 billion shares changed hands. Declines led advances 3 to 2.

On the economic front, initial claims for unemployment rose by 18,000 last weekto 409,000, up from an upwardly revised 391,000 the week before, the Labor Department said. Economists surveyed by Reuters had expected claims to rise to 400,000, from a previously reported 388,000. The four-week moving average for claims, however, fell 3,500 to 410,750, the lowest level since July 2008.

Now the market will turn attention to the release of nonfarm payroll data on Friday. The government is expected to report payrolls rose by 175,000, up from only 39,000 in November, while the unemployment rate is expected to fall to 9.7 percent from 9.8 percent, according to Reuters.

Goldman Sachs chief economist Jan Hatzius expressed doubts about the methodology used by ADP to assess private sector employment and said he expects a below-consensus growth of 100,000 nonfarm jobs.

"Despite our generally upbeat view on the economy, which continues to be reinforced by incoming data, we view the dramatic improvement shown in the ADP report with skepticism," Hatzius wrote in a note to clients.

European shares were broadly higher with banking stocks leading the gains. China upped its holdings of euro zone debt, including that of Spain's troubled economy, signaling its support for the region, the Chinese Commerce Ministry said. Asian indexes were mixed at the close, but the Nikkei 225 ended sharply higher.